Developing Young Opportunistic Entrepreneurs in High Unemployment Areas

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1 Journal of Education Research and Behavioral Sciences Vol. 3(8), pp , October, 2014 Available online at ISSN Apex Journal International Full Length Research Developing Young Opportunistic Entrepreneurs in High Unemployment Areas Sadhasivan Perumal*, Luke Bozas and Rubeshan Perumal University of Kwa-Zulu Natal, Durban, SA Accepted 6 October, 2014 The government aims to reduce poverty and unemployment through job creation and economic stability. Much emphasis has been placed on the importance of Small Medium and Micro Enterprises (SMME s). It has been found that there is a great need to promote entrepreneurship and SMME development in contemporary South Africa to boost the economy and create further jobs. The importance of skills training has been outlined and what skills have been found to be lacking in the average aspiring entrepreneur. Field research was conducted in the city of umhlatuze in Central Zululand, KwaZulu-Natal. This site was chosen as it is a growth node and also, it was possible to identify numerous numbers of target respondents of established small business owners. It was found that an alarmingly high percentage of the respondents were grossly under equipped to venture into business. The fact that they overcame their shortcomings and inadequacies and survived was remarkable. It was also found that there is a definite need for certain entrepreneurial, business and management skills to be taught. Key words: Entrepreneur, Small Medium and Micro Enterprises, business and management skills. INTRODUCTION As most entrepreneurial activity within the economy is generated by SMME s, it may be said that entrepreneurship has been identified as a vital part of the contemporary South African economy (Opportunity, 2011: 52). The importance of entrepreneurs is therefore crucial for the improvement of the South African economy and it is the best way that employment is created in South Africa (Hough, Nieman, Nieuwenhuizen, 2007: 4). Extensive funding has been awarded to organisations which provide business and management training as well as mentorship programmes aimed at entrepreneurs (Enterprise Development, 2011: 1). The reason for this is that every successful new small business owner will employ more individuals as the business grows. This means more tax for the government and fewer individuals for the state to support as the burden on the state from the unemployed decreases (Steyn, 2006: 85). In his State of the Nation Address (February 2011) President Zuma stated that R9 Billion would be allocated *Corresponding author. Perumals@ukzn.ac.za over the next three years to create jobs, calling 2011 the year of job creation. The plan would be to create five million jobs by 2020 (Mulholland, 2011: 55) and help reduce the unemployment rate to 15%. However, according to the South African Chamber of Commerce and Industry (SACCI) there has been no improvement since. In fact, they predict a possible loss of jobs by the end of the year (Opportunity, 2011: 52). The global economic crisis is severely impacting on South Africa s ability to show this level of growth and as a result, job creation, unemployment, retrenchment and fewer opportunities than previously are the harsh reality (Opportunity, 2011: 52). Private industry is a crucial element in developing employment opportunities (Pivot, 2011: 11). The problems currently being experienced were also present back in The importance of the role of new black business and small business in the job creation process also cannot be stressed enough. This is not only a means to job creation, but also a way of accelerating the economic empowerment of previously disadvantaged South Africans (NEDLAC, 1997). The perceived problem is that efforts made to facilitate entry into business have not been successful. This is

2 260 J. Educ. Res. Behav. Sci supported by the high failure rate of new businesses in the first year and even in the second and third year of operation. This research was designed to discover what key factors or areas an entrepreneur should pay attention to in the development of his/her small business to reduce the chances of failure. These key areas have been identified from the experiences of successful entrepreneurs and through consultation with managers of mentorship initiatives which have seen first-hand why potentially successful businesses fail.. Research Intention This research attempted to identify aspects of business that owners of new businesses need to pay attention to in order to survive and to be successful. By means of a face to face questionnaire process with established small business owners, this research was able to determine what qualities and aspects they considered most valuable to any new business owner or entrepreneur. Secondly, discussion with individuals involved in mentorship programmes identified what they perceive as the reasons for the high failure rate of aspiring entrepreneurs. A comparison of these views has been made to elaborate areas to which new business owners or government need to pay attention to in order to facilitate small business growth, job creation and economic growth. Business owners provided feedback based on their experience about what they consider to be important factors in the initial start up phase of a business. They then elaborated on issues that they had overlooked when they started out, yet now believe are critical issues that must be given attention. Focusing on businesses which thrive rather than those which fail and cease to trade, has ensured that this research has been able to determine, based on first-hand experience, what successful traders value as important to success, given the benefit of experience and hindsight. Through investigation into mentorship programmes, insights were obtained about the strengths and weaknesses of such programmes. Experts aspiring small business entrepreneur mentors gave their opinions on the reasons why many solid business plans failed once put into action. They feel that this was largely due to key elements being neglected. This research sought to identify and reveal why recently started small businesses with solid business plans so often fail. The difference between business and managerial skill and entrepreneurial flair is discussed. The issues of entrepreneurs who start a business to survive economically versus the opportunists are explained as well as their potential for growth and job creation. Data was examined and a thorough analysis was made. Conclusions were reached resulting in recommendations being made. The findings of this research identify key areas on which small business owners need to focus in order to survive and thrive. The title of the work directed the focus of the study. By identifying and understanding the challenges and experiences of successful small business owners, combined with interviews with individuals involved in mentorship initiatives, suitable conclusions were reached. From these conclusions, appropriate recommendations were made, amongst which is a framework which can be used to ensure that the failure rate of new business and mentorship programmes for fledgling businesses decreases. State of Entrepreneurship in South Africa Entrepreneurial activity in SA is not increasing (Steyn, 2006: 72). This may be because entrepreneurial activity is commonly engaged in as a means of survival rather than as an opportunity to improve one s life. A survivalist entrepreneur is less likely to employ people as the business is in all probability stagnant and not able to grow. Approximately a third of small business entrepreneurs claim to have gone into business due the fact that they could not find employment (Turner, Varghese and Walker, 2008: 16). In the year 2004, opportunity entrepreneurs accounted for half of the total entrepreneurial activity for South Africa. At this time the international ratio of necessity versus opportunity was 4:1. This shows that even though there is entrepreneurship activity, these positive efforts to earn an honest living, are undertaken because there is no other option and people were forced to become survivalist entrepreneurs (GEM, 2004). Women represent more than 50% of the population across all racial groups and provinces (StatsSA, 2010: 12). However, according to (Scarborough et al., 2006: 16) women only own 33% of small businesses. The unemployment rate in South Africa is currently estimated at 30 %, the highest recorded in recent history. The South African economy had been in a decline for many years with a meagre 2.2 % growth rate in the 1980 s and no growth in the early 1990 s (Hough et al., 2007: 4). Since 1994 the economy has experienced more rapid growth and disposable income has risen, but in spite of this, the unemployment rate remains high (Hough et al., 2007: 4). High unemployment is South Africa s greatest socioeconomic problem as it inhibits government from providing an enhanced quality of life to all. The economy needs to grow at six percent in order to create employment for the 30 percent who are unemployed, yet given the current economic crisis economists predict a growth rate of only two percent according to Boyle and Malefane (2008: 1). Entrepreneurship The term entrepreneurship is a commonly used word yet

3 Perumal et al 261 there are many different definitions for the term and how it should be understood. The following definitions will show how the term has developed over recent times. Some of them allude to the qualities that an entrepreneur should poses which differentiates him from a manager or business owner. Hisrich and Peters (2002: 7-72) expand on this, stating that an entrepreneur is in business for personal gain through innovation. An entrepreneur needs to consistently improve and create in order to better his product or service compared to that of others. An entrepreneur creates value by accepting risk in order to obtain wealth, personal gratification and sovereignty. According to Shane (2003:4) entrepreneurship involves the process of the discovery, evaluation, and exploitation of opportunities that previously had not existed. This implies that an entrepreneur is creative and innovative in finding a way to make use of an identified opportunity. Types of Entrepreneurs There are many forms of entrepreneurs but two distinct types can be identified based on their motivation. An entrepreneur may either seize an opportunity that exists, or has to start his own business through necessity because he has failed to find employment which was more rewarding or appealing (GEM, 2004). Opportunity Entrepreneurs An opportunity entrepreneur is more likely to experience greater success because s/he is motivated by the prospect of making high returns and establishing a sustainable business with potential for growth. This would mean that the business has a better chance of being in a situation of needing to employ more staff (Tahir, 2011: 520). Opportunity entrepreneurs have true entrepreneurial flair and passion and demonstrate innovation and risk taking traits. These businesses will grow and create further employment (Hough et al., 2007: 30). High expectancy entrepreneurs are defined by the GEM as a new business which is likely to employ at least 20 employees within five years (GEM, 2005). Necessity Entrepreneurs These survivalist entrepreneurs are simply in business in order to make enough income to live. These subsistence businesses are often isolated from markets and work hard to sustain themselves. (Hough et al., 2007: 28). They have little aspirations for growth and are comfortable as they are (Tahir, 2011: 520). This high percentage of non-opportunity entrepreneurs represents a large number of people who do not have the flair or tendency to be natural/opportunity entrepreneurs. This therefore suggests that such people need greater exposure to formal business training, with which they may become more successful. Increased training, along with initiatives to help individuals to reach their potential, develop their businesses and develop their survivalist businesses into the mainstream economy, is essential (GEM, 2004). RESEARCH METHODOLOGY As the problems investigated were perceived ones, it was necessary to determine if they were in fact valid problems. Once this was established, the research could begin in earnest. This research is not an historical review examining developments and improvements over time but rather a methodological and contextual review. The research has identified which aspects of business have been key factors to the success of established small businesses in order to make recommendations which may assist people in fledgling businesses to avoid the pitfalls and have a better chance of success. This approach is supported by Neuman (2003: 142). Field research was conducted in the city of umhlatuze in Central Zululand, KwaZulu-Natal. This site was chosen as it is a growth node and also, it was possible to identify numerous numbers of target respondents of established small business owners. In order to secure names of people to contact concerning the planned research, contact was made with individuals who are involved in mentorship initiatives and business networking organisations. The research tool that was used to investigate the perceived problems and to elicit primary data was a closed questionnaire, based on a Likert scale. A few open-ended questions were added at the end to ensure depth to the research. Questions sought to determine the length of time that the business has been in operation, its success level and the owners level of business knowledge when starting out. In addition to the questionnaire process, interviews and in-depth discussions with individuals involved in mentorship organisations were held. These interviews sought to discover if any common faults or trends existed concerning failed entrepreneurial ventures. Reasons for such failures were sought. Secondary data was sourced through a literature review, which included consulting academic, peer reviewed, journal articles. Small business owners were asked to complete a questionnaire, rating their opinion of the degree of importance (knowledge) of several management issues when they started their businesses. They were then asked how important they perceive those issues to be now, having been in business for many years.

4 262 J. Educ. Res. Behav. Sci As a result of this research, suitable proposals have been made that will be of value to people venturing into business for the first time. The research has identified specific areas that successful business owners value as important to their success and recommendations have been made based on the responses. If applied, these recommendations are bound to reduce the risk of new business failure and contribute towards the success of new businesses. This research was concerned with determining which characteristics and aspects of business are of importance to the small business owner to ensure the survival and growth of the business. It was therefore essential to target people who owned small businesses to glean such information. Based on literature search of business management related topics, the following areas were pinpointed for study: i. Strategy ii. Marketing iii. Human Resources iv. Control Systems/Procedures to be followed v. Management vi. Budgeting vii. Cash Flow viii. Accounting, Legal and Tax Implications ix. Sales x. Service Quality xi. Product Quality xii. Image xiii. Reputation xiv. Supplier Relationship FINDINGS A total of 46 completed questionnaires were received out of the 50 questionnaires that were distributed. Of the four that were not included in the research, two were received well after the statistical analysis had been done. All the 46 questionnaires received were sufficiently completed for statistical analysis. This represents 100% usability rate. The return rate of usable responses was 46 out of 50 being 92%. The high response rate is attributed to the fact that other than the four missing responses, all of the others were undertaken on a face to face basis. Two of the four missing questionnaires were returned late due to the workloads of the individuals concerned. Although these ones were not factored into the research, the responses were very similar to those of the other respondents. The entire population from whom information was sought comprised owners of small businesses in Empangeni and Richards Bay, which are constituent parts of the City of umhlatuze. The demographic details of the respondents were recorded and included age, gender, tenure, length of service in the industry/organisation. The participants in this research are 71.7% male and 28.3% female. The fact that 33% of small businesses in South Africa are owned by women shows that a good representation in terms of gender was obtained in this research (Scarborough et al., 2006: 16). According to the data gathered for this study the dominating race in the business industry are Whites at 63% followed by the Asians at 23.9%, with Blacks and Coloured at both 6.5% each. The largest percentage of the respondents fell in the years group (43.5%), followed by the groups years (23.9%), with both 60+ years and years at (13%) and years (6.5%). Respondents were chosen randomly, yet the pattern supports the literature which records that there is a high failure rate of start-up businesses and that even in the second and third year of operating, economic casualties are high. To determine the level of knowledge that successful small business owners had on each of the range of facets of business management when they started their businesses, Table 1 was drawn up. This Tables 2 and 3 drawn up from responses of people who have succeeded in business illustrates alarmingly high percentages of the respondents who were grossly under equipped to venture into business. The fact that they overcame their shortcomings and inadequacies and survived is remarkable. Further research could be undertaken to interview the respondents who had such scant knowledge of business management issues to determine how they realised their inadequacies and what they did to overcome the problem. Questions directed around determining the level of success of the entrepreneur also questioned if the entrepreneur believed he would have been better off if he had been employed by someone else instead. Expert Insight Interviews with expert mentors from organisations offering mentorship to aspiring entrepreneurs and small business were conducted. The questionnaire was used as a template interview schedule to ensure all areas were covered. These interviews were open-ended discussions and it was found that there is a definite need for certain entrepreneurial, business and management skills to be taught. Experts provided insight and examples of reasons they perceived as the causes of failure for some entrepreneurial ventures. A comparison of the three most important skills found to be absent or extremely poor have been identified by each group offering mentorship programmes has been made. There was a need for basic financial skills, and help

5 Perumal et al 263 Table 1. Levels of Key Facets of Business Management. No Very Limited Some A Good Level of Expert/Vast Strategy 6 13%) 14 (30%) 12 (26%) 11 (24%) 3 (7%) 46 Marketing 12 26%) 13 (29%) 7 (15%) 9 (20%) 5 (11%) 46 Human Resources 13 (28%) 12 (26%) 7 (15%) 11 (24%) 3 (11%) 46 Systems 4 (9%) 11 (24%) 10 (22%) 13 (29%) 8 (17%) 46 Management 4 (9%) 12 (26%) 10 (22%) 14 (30%) 6 (13%) 46 Budgeting 6 (13%) 10 (22%) 11 (24%) 11 (24%) 8 (17%) 46 Accounting, Tax and Other Laws 18 (39%) 8 (17%) 8 (17%) 8 (17%) 4 (9%) 46 Cash Flow 5 (11%) 7 (15%) 10 (22%) 13 (29%) 11 24%) 46 Sales 5 (11%) 2 (2%) 14 (30%) 13 (29%) 12 (26%) 46 Service and Product Quality 2 (4%) 6 (13%) 9 (20%) 10 (22%) 19 41%) 46 Image 1 (2%) 5 (11%) 12 (26%) 13 (29%) 15 (33%) 46 Reputation 1 (2%) 5 (11%) 11 (24%) 7 (15%) 22 (48%) 46 Supplier Relationships 2 (4%) 4 (9%) 5 (11%) 18 (39%) 17 (37%) 46 TOTALS Total Table 2. The importance of mentorship for any aspiring small business owner was evaluated by the respondents Frequency Percent Valid Percent Cumulative Percent Valid Not important Unsure Slightly important Extremely important Total Table 3. Describe Your Situation When You First Went into Business. Frequency Percent Valid Percent Cumulative Percent Valid No previous business experience Some business experience Limited experience but holding a Certificate/ diploma/degree in management Previously a manager with considerable experience Total with marketing in terms of identifying target markets and the price for which a product should be sold. This provides insight into skills problems behind the inability to identify competitors, and financials to ensure a positive turnover or cash flow. Only once this has been achieved through an established competitive advantage, should the business focus its attention on future growth. This reinforces the argument that much is still needed in terms of mentorship for SMME s and any aspiring entrepreneurs. These skills cannot be expected to be understood, grasped and perfected quickly but instead it is a continuous process of learning. Limitations of the Research This research was confined to a small geographic area, focusing on small businesses within the city of

6 264 J. Educ. Res. Behav. Sci umhlatuze. This research did not look into the issue of funding for businesses as there appears to be considerable research that has covered that aspect. In addition, because there is not a comprehensive and accurate data base of small businesses and entrepreneurs, the sampling process was random and therefore only represents a small segment of the total population. As such the recommendations made here are based on the results of this study. If implemented, the results will need to be closely monitored in case there are deviations from the expected end result. This is a small scale study and a larger one with greater funding done over a wider area would be more comprehensive and might yield additional insights. The fieldwork for this research was self-funded and was conducted on meager resources which limited the amount of research that could be undertaken. Another limitation of the study is that some people who were approached to participate, were too busy and out of respect for their right to conduct business and to serve their clients, they were not harassed to be part of the study. It should be noted that another limitation of this study is that it recognises the importance of sufficient capital to found a business and the issue of access to capital. These are certainly mentioned, but they are not the focus of this study. Instead, the issue of financial inexperience and mismanagement are presented as possible alternative reasons for business failure. Another aspect which was taken into account is that each owner/entrepreneur is a unique individual and his/her personal experience and the way s/he conducts and manages his/her business varies from other entrepreneurs, providing different results. This study has ascertained the common areas are of importance. The following aspect should be acknowledged however were not the focus of the research: i. Access to capital is often used as an excuse for failure rather than poor financial management ii. Most Entrepreneurs have several businesses which fail before they develop a winning formula iii. What might be one small business owners strong point in management may be another s weak point iv. The focus on management issues in different industries or businesses may vary in importance Conclusion It has been found that there is a great need to promote entrepreneurship and SMME development in contemporary South Africa to boost the economy and create further jobs. The importance of skills training has been outlined and what skills have been found to be lacking in the average aspiring entrepreneur. A distinction between necessity and opportunistic entrepreneurs has been discussed demonstrating the importance for a drive towards individual who seize and opportunity and are able to be innovative and adapt to the ever changing environment in order to survive and ultimately prosper and offer jobs to others. REFERENCES Boyle, B., Malefane, M. (2008).The ANC s Costly Election Promises. Sunday Times, 30 November Enterprise Development (2011). A Showcase of South African Enterprise Development. Creative Space Media. Lonehill. GEM (2004).Global Report. Global Entrepreneurship Monitor. Babson College. Massachusetts. GEM (2005).Global Report. Global Entrepreneurship Monitor. Babson College. Massachusetts. Hisrich,R.D., Peters, M.P. (2002). Entrepreneurship. 5 th Ed.McGraw-Hill Irwin. New York. Hough, J., Nieman, G., Nieuwenhuizen, C. (2007) Entrepreneurship: A South African Perspective. 7 th Ed. Van Schaik. Pretoria. Impact. (2008). Economic Strengths of Zululand: Richards Bay and Empangeni; City of umhlathuze; uthunulu District. Norma Beyl and Associates. Durban. Mulholland, S. (2011). Labouring the Point: Small Businesses Not Big By Far The Largest Job Providers.Finweek. 24 February: 55. Opportunity (2011). Exploring Business Prospects in Southern Africa: Sept/Oct. Cape Media. Rondebosch. Pivot (2011). Driving Growth in KwaZulu-Natal: May. Ministry of Economic Development and Tourism. Pietermaritzburg Scarborough, N.M., Wilson, D.L., Zimmerer, T. W. (2006).Effective Small Business Management: An Entrepreneurial Approach. 9 th Ed. Pearson Prentice- Hall. New-Jersey. Shane, S. (2003). A General Theory of Entrepreneurship. Edward Elgar. Cheltenham. StatsSA. (2010). Stats in Brief. Statistics South Africa. Pretoria Steyn, G. (2006). The Role of Government in Developing Entrepreneurs in South Africa. Graduate School of Business Administration. University of KwaZulu- Natal. Tahir, P.R. (2011). A Short Review of Factors Leading to Success of Small Medium Enterprises. Inst. Interdiscipl. Bus. Res., 2(11): Turner, M.A., Varghese, R., Walker, M.A. (2008). Information Sharing and SMME Financing in South Africa: A Survey of the Landscape. National Credit Regulator. Pretoria NEDLAC (1997). NEDLAC Summit. [Online]. Available: iness.html [Accessed: 2009, 07 May]